Update from Washington

hi everyone this is charles hoskinson broadcasting live from swampy murky washington dc a little bit away from my homeland of colorado and wyoming but an important place to be so as many of the regulatory reality environment has changed a bit over the last few years and it's gotten to a point where many people in washington both in the executive branch and in the legislative branch feel a desire need and want to begin actually regulating or enhancing i should say or changing the way that regulation is handled in the united states with crypto currencies to this end it's a bit hard to predict what's going to happen where things are going to go so i made the decision to bring a delegation to washington and so i've spent this entire week meeting with different lobbying groups advocacy groups attending events meeting with congressional staff and staff of the us senate as well as members of different bodies the cftc and try to get a better sense of where things are going and what legislative actions are underway at the moment in terms of ongoing efforts i i'm going to highlight three different things that i think have some degree of influence and viability over the regulatory reality moving forward for our industry first is hr 7614 this is a bill called the digital commodities exchange act the basic idea is to change the way that regulation handles icos and change the way that trading of tokens work but the longer the short is that it provides a lot of necessary clarity and in many cases it pushes cryptocurrencies more towards the treatment of being a commodity than a security from the perspective of long-term ongoing regulation for things that are sufficiently decentralized it simplifies standards for exchanges and it provides much needed clarity and a lot of edge cases that could allow us as an industry to move forward the political reality of the bill is it's unlikely to pass in its current form however it is creating a great conversation and many people are starting to have conversations about the nature of tokens what is a digital commodity pre-sale how should insider trading market manipulation information asymmetries be treated and so forth another major legislative effort and this is in the senate america has a bicameral model the u.s senate has the lummus gillibrand bill which will be announced and deployed around june 7th so next month before consensus now this bill is significantly more comprehensive in scope it covers many different areas from taxes to self-regulatory organizations it has some discussion on commodities and securities and notions like sufficiently decentralized it's over 140 pages long from drafts that i've seen and we've known about the existence of this bill in one form or another since last year however this is the first time that the bill has received bipartisan traction and it has a degree of inevitability to spark an interesting debate throughout the senate but it requires four separate committees to survive and move through the process and again it's unlikely in its current form to pass but both bills do provide a much-needed conversation throughout washington and a much needed reality check that regulation will come in a different and hopefully better form so that we as an industry can move forward now the third effort is the biden executive order which is calling for a unified approach amongst all actors in the executive branch so the first report will be due sometime i believe in june if they're on schedule and then throughout the year things will trickle out now it's my belief that these three things will collide into each other in some form and if there is any will or desire to pass legislation that the end result of these three things colliding will be some form of compromise agreement now many people ask what is my position what are the things i lobby for what are the things my organization lobbies for and in many of the conversations i had was congressional staff and senate staff they asked exactly the same thing i believe that we need to do three things in order to be able as an industry to move forward first our industry lacks any coherent definition of decentralization so the problem is that as a result of that lack of definition there are over 8 000 projects in the cryptocurrency space that on a regular and consistent basis are making claims of decentralization yet because we don't have a basis upon which to validate those claims or to hold those claims accountable basically it's an open phrase it's an open word and the challenge there is that these claims are inferring certain properties about consumer protection certain properties about market structure and certain properties that are encouraging people to invest time effort and money into building on these systems the lack of clarity and the lack of specificity means that people may be making decisions often are making decisions that in hindsight they would not so the lack of clarity on decentralization is also creating problems of what is a commodity what is the security or some other category of asset so it's my belief that we as an industry need to work with policy makers and figure out how to measure decentralization for our part we're going to be setting up a lab at university of edinburgh in collaboration with the university and released several papers and try to create an index an editorial decentralization index the hope here is that we can take the top 15 top 20 cryptocurrency projects and others in the d5 space and measure them in an explicit way an explicit scale and then people can see how they measure up in reference to bitcoin according to some objective metrics and then at least we can talk about standardizing such things at least we can talk about the merit and credibility of such things the existence of this excuse me the existence of this should provide a good basis to have a discussion with lawmakers moving forward about how to codify the notion of sufficiently decentralized as a fundamental component of regulation second there is no notion of a consumer protection or consumer bill of rights with crypto currencies at the moment cryptocurrencies are in many ways a promissory stoppal and what i mean by this is that if a person is building for example on open source software they have a fundamental belief that the author of that software can't write and wake up tomorrow and decide arbitrarily to retroactively remove that open source nature and then demand a royalty the entire notion of open source software would not work if people had this unilater lateral retroactive power to undo things so we have an implicit understanding and that's the only way the markets can work now the problem with consumer protections and cryptocurrency is that some people like to believe that that implicit understanding is unlimited when you use these protocols if things go your way everything's fine if things don't go your way then someone should be accountable for that that's not sustainable on the other hand as a protocol developer especially if a protocol developer is financially benefiting for the use and utility of the protocol there must be some understanding that the protocol behaves the problem is that it's difficult to decide where that spectrum lies and what things need to be put together so this is another example of the public-private nature of a notion of a consumer bill of rights or user rights of cryptocurrency and it's my belief that they should be codified explicitly in the design of the system through some sort of system-wide constitutional process system-wide user agreement and built into the dna of it however there is a legislative opportunity to decide on certain consumer protection and government principles everything for privacy to software quality and then create incentives for people to move in that particular direction third there is a transnational notion to this marketplace and we're in a situation where regardless of what u.s regulations are and what legislation is passed to create these regulations or encourage them we have to find a way as a global community to work together and the things that happen in dubai singapore switzerland and other jurisdictions are just as meaningful in some cases more so than the things that happen here in washington dc we saw the emergence of voluntary and private standards for example the wolfsburg principles with kyc and aml this is a unique opportunity to have a discussion about how we as a global community can discuss about how we can create universal principles and universal concepts that are applicable throughout the cryptocurrency space so these are the kinds of discussions that we've been having in foundational things that we're trying to figure out and the good news is that we're not alone in that there are dozens of actors in dc at the moment some of which are embedded and permanently here and some of which have been here recently because of the collapse of luna as well as higher demands for regulation and having these conversations and trying to work their way through some people are being very aggressive some firms are hiring lobbyists and pacs and promising to get involved in electoral politics if things don't go their way others are being more irdite where they're investing heavily in education from our part every congressional member and senate member that we've met with they've seemed to express a genuine opportunity to get more information and to be better educated on the topic so there seems to be some good will there in that respect and it is my belief if we continue to educate we probably can make significant progress that said there is a lot of cynicism it's very clear the legislative process in washington dc is ineffective at many times very bureaucratic and many times and oftentimes does not resolve the problems the underlying root causes of the problems that they seek to solve but just simply applies either a delay or some sort of surface cure for this evil on the other hand this is an industry that now has commanded evaluation until recently was over 2 trillion dollars and this is an industry that creates jobs that pay hundreds of thousands of dollars a year this is an industry that's ultimately going to be responsible for in my view the majority of wealth creation of the global commons over the next 50 years to 100 years or at least command an outsized interest in that respect comparable to what we saw with the ict revolution and so as a result there is a universal incentive to get these things done so what will we do well i run a private company i don't speak on behalf of carton on the protocol i don't speak on behalf of the foundation or the hundreds of actors who are building companies in the cardano ecosystem or the millions of people who use the protocol all i can do is talk about the things my company and myself are going to engage in from our point we're going to continue engaging with bodies the dcc the blockchain association and others and try to find ways to collaborate and learn from each other we're going to continue having discussions with lawmakers about policy and when given drafts of bills comment on those drafts about where the language can be more effective and from our part we're also going to look at emerging technologies to assist in the regulatory process for example making laws machine understandable algorithmic regulation these types of concepts and building foundational tools that can be used for regulated activities for example cardinals metadata standard can be used in this way atala prism can be used to create rich identities which can adhere to compliance patterns always important to point out that these are optional provisions and not mandatory we built them in a way that people can use them where and when they made sense and you the user get to decide that i just build tools all day long i don't get to decide how you're going to use them or if you use them but they should be made available because at least one person the cardano ecosystem is going to be engaging and have a desire to do regulated business whether it be a security token offering whether it be a regulated defy whether it be legacy financial institutions like banks adopting the protocol and they want to maintain their charters these are hundreds of use cases that are not hypothetical but are already under construction or have been constructed and are being used on a daily basis we simply can do better in addition to that it's become clear that the knowledge gap is still quite significant among some lawmakers and some policy makers and that there needs to be some investments in basic education to try to bring people up to speed about where things are at the capabilities of these systems too many people seem to associate cryptocurrency and blockchain technology strictly with coin market cap and the value of the underlying asset and the reality is that there's so much more nuance and magic to the things that we build and oftentimes the least interesting part of cryptocurrencies and blockchain is the value of a token it's some other property and so that bridge has to be built and that gap has to be filled so it's very important that we invest there so overall it was a very productive trip we learned a lot we met a lot of great people some alliances and friendships that are quite enduring i'm ultimately long-term optimistic that we can achieve a lot as an industry especially with legislation like h.r 7614 and alumnus bill these are necessary steps forward in a certain respect that create a very nice conversation to have now if i had to make a prediction of what is most likely to be regulated over the next six to 12 months i believe that we will see some legislative and regulatory progress in the regulation of stable coins in particular asset-backed stable coins are likely going to be the greatest impacted and affected and there is certainly a conversation about how to treat and what to do with algorithmic stable coins now people have different opinions but in my particular view especially with asset back stable coins you really are in a privileged position of trust and this is not in spirit what we signed up for in the cryptocurrency space if you have a central issuer and the value is derived from promises of that central issuer it really does feel a lot more a bank or regulated financial institution than it does a decentralized protocol now if the asset can be completely custodied and the management of such things can be done on a blockchain for example a bitcoin backed token or an adapt token or some derivative thereof after that's a slightly different scenario but if the asset is a legacy asset like for example the us dollar or the euro and that requires trust and faith in a centralized institution then it really does make sense to me that there needs to be oversight in that respect because we've seen what happens when there isn't in the 19th century and 20th century and we can't really trust people for indefinite periods of time to aspire to the better angels their nature when they have financial incentives not to so these are examples where things will likely happen over the next six months to 12 months if anything will progress now if you ask my personal political belief i do believe there's a very strong possibility that there will be a change of government in the legislative branch in 2022 how extreme is difficult to tell but if that does occur we will once again in the united states have divided government and that divided government perhaps is an opportunity for for cooperation and compromise or that divided government could only exacerbate the political divisions that we currently have in the united states and we have plans for both sides in the event that they're exacerbated it's just a matter of trying to survive in in a very uncertain environment and do your best if there's opportunity for compromise there's a potential for comprehensive legislative reform that can allow the markets to stabilize around new standards that would be the ideal outcome who knows i i for one have always been optimistic and i'm not so cynical to believe that nothing can be accomplished i think a lot of very well intended good people do want to see the things move forward and a lot of good intent and well people do want to see this industry continue to survive i was surprised by how many allies adherents and advocates even amongst government officials that i met while i was here in washington but proof is an action it's not in words and we will see over the next year or so what happens now we as a community our strength has always been our capacity and ability to hang together and to show our work we will continue as a community testing governance experiments we will continue as a community to ever get more decentralized and resilient and diverse and we as a community will continue to innovate many of the things we are doing in cardano are not just about scalability and performance and devil x and quality of code but have a lot to do with the social elements of a cryptocurrency it is a very rare and unique opportunity that each and every one of you is participating in the construction of a digital government as much as you are participating in the construction of a protocol and everything about how decisions are made how we change things is inevitably going to be up for grabs by those who are willing not those who are privileged which is a special thing i think there's a lot that washington can learn from us as an ecosystem and the things that we do could potentially have deeper ramifications than just the governance of cardano as a whole so it's a conversation it's an engagement and there's a lot of work to do there's a lot of places we have to go there's a lot more shoe polish that has to be worn off and a lot more trips to washington but if they're as productive as this one that i took then that's a good thing that's a good sign so anyway i'm pretty tired i'm gonna go get some sleep but i figure i'll give you guys an update of where we've been what we've done and the progress we've made i'm pretty happy with this trip a lot more to say over the next 90 days do certainly amas about it and so forth but for the time being it's the best we could do in one week and we certainly learned a lot i really do want to close with one final point i did discover that certain members of the bitcoin community are actively telling lawmakers to write into legislation that everything but bitcoin is a security to write into legislation every attempt possible to delegitimize or outright ban proof of state cryptocurrencies this was extremely disappointing and disheartening i like to believe that despite that we have political differences or technological differences or differing financial incentives that we would fight these things in the marketplace of ideas and the marketplace of users and traditional competition the attempt to co-opt the u.s federal government and legislative process to ban your competition is anathema to every single thing the bitcoin movement was founded upon this is the behavior of multinational banks it's not the behavior of people who came from libertarian principles and free market principles it's disgusting it's reprehensible and it's unbelievable that people would tell the staff of members of congress and senate to do these things saw the messages saw the emails heard it from many different sources and we know who you are so it's childish it doesn't really have much of an impact and frankly it delegitimizes the people saying and doing it but it does show that our industry has a long way to go we have to be mature we have to be adults and we have to acknowledge that problems have occurred when tens of billions of dollars gets lost in a matter of a week and the people responsible for that will probably still walk away with millions if not billions of dollars and many people were warned that these things could happen and there are no consequences or perceived consequences this is an invitation for heavy regulation this is an invitation for sweeping legislative changes that in hindsight could be very damaging or problematic to our industry in for some reason a lot of people don't seem to want to call out this behavior they just say let's move on and pretend it didn't exist and the fact that maximalism has gotten to the point where dirty tricks are being played and people are trying to convince politicians now to encode maximalist principles into u.